Texas dealmaking nosedives in first half

2of4The towers and campus of Anadarko Tuesday, Jun. 4, 2019 in The Woodlands, TX. Some area business owners are concerned about the impact of losing business due to the sale of Anadarko to Occidental Petroleum, and the possibility of the employees and headquarters relocating.Photo: Michael Wyke / Contributor

Dealmaking involving Texas companies took a nosedive during the first half of 2019.

New data shows that mergers and acquisitions in which businesses headquartered in Texas were the buyers or sellers plummeted to the lowest level since 2015, the year of last big oil price crash.

And dealmakers are mixed about whether M&A activity will get any better during the rest of this year.

There were 470 M&A transactions in the first six months of 2019 - 18 percent fewer than during the same period last year, according to Mergermarket, which provides data exclusively to The Texas Lawbook.

Deal value also slipped 9.4 percent to $154.7 billion, and one-third of that came from one huge oil and gas acquisition.

“Regrettably, I would say the deal market in Dallas, in Texas, nationwide and seemingly worldwide is tepid with buyers being exceedingly cautious,” R. Scott Cohen, a partner at Jones Day in Dallas, said in an email. “Even in the case of deals that are actively negotiated and documented, buyers have pulled back at the eleventh hour.”

Mergermarket data shows that companies involved in the energy, mining and utility sectors were involved in 89 transactions during the first half of 2019 - down from 103 deals a year earlier.

Even so, those deals had a combined value of $98 billion, or 63.4 percent of the total.

Stephen Szalkowski, a partner at Latham & Watkins in Houston, blames the drop in oil prices at the end of 2018 and into the start of 2019 for dampening market enthusiasm for energy deals, along with retreating equity capital markets and renewed pressure from stakeholders on explorers and producers to live within cash flows.

“It’s forced E&P companies to reevaluate their business models and analyze more closely their own business plans, assets and operating margins,” he said in an email.

Consolidation among producers and oilfield services providers, privatizations of midstream master limited partnerships and financing transactions for infrastructure build-out are the M&A themes so far for 2019, according to Doug Bacon, a partner at Kirkland & Ellis in Houston who has worked on six public M&A transactions in the last seven months.

“We’re either consolidating companies or financing companies in the oil and gas space,” Bacon said.

The five largest M&A deals involving Texas companies so far this year are:

While energy dealmaking is definitely down, technology M&A is booming, according to Travis Wofford, a partner at Baker Botts in Houston. But tech deals aren’t as large in terms of value as energy deals and are often private, he said.

“The public activity in terms of volume is down, but in terms of private deal flow, I think it’s probably in line with last year,” Wofford said.

Jackson Walker partner Stephanie Chandler in San Antonio said she’s seeing a lot of family-owned businesses - such as baking products purveyor C.H. Guenther last year and fast food chain Whataburger last month, being sold because there’s a lot of private equity money looking for a home and because families want to involve the next generation in new investments and philanthropy.

“In both of those transactions, the companies had very good longstanding professional management teams supporting the family owners, who are looking for relationships with funds so their companies can grow and keep their employees employed,” she said.

Deal lawyers around the state are mixed as to whether conditions will improve in the second half.

“We have seen an uptick in recent months, but I can’t yet say that it points to a sustainable improvement,” Jones Day’s Cohen said.

Kirkland’s Bacon said he remained optimistic about consolidation in the oil and gas industry, as there are still too many oil and gas companies that aren’t big enough to meet investors’ demands for operating within cash flow and returning capital to investors.

“You’re in a situation where the equity markets are functionally closed to oil and gas companies and so are the regular debt markets. So you’re left wondering, how do we navigate the next few years?” he said. “There’s a lot of consolidation that still needs to happen. I don’t see an end to that.”